Genes 2 Brains 2 Mind 2 Me

Its hard not to gawk at the sub-prime mortgage spectacle these days … seems like there are limits to borrowing – who’d a thunk? I was struck reading the news of one fund, Global Alpha, a quantitative strategy fund run by the elite Goldman Sachs firm. Wow, if the brightest of the bright can stumble, I suppose no one will escape unscathed. In any case, the name of the fund ‘alpha‘ – refers to an aspect of the capital asset pricing model (the y intercept) that accounts for endogenous, organic growth of an asset, instead of growth driven by an overall rising marketplace (this type of illusory growth is denoted by beta). I’m not a successful investor, but the ability to identify sources of alpha seems like an important skill.

Which eventually got me wondering … where is the alpha in healthcare? What drives organic growth of the for-profit sector of the healthcare industrial complex? Creativity? New technology? Efficient use of technology? Demographic shifts? Cost-cutting and adverse selection (think Sicko by Michael Moore)? I suppose all of the above.

But, in some ways, the concept of alpha as embodied in the CAPM doesn’t seem to apply quite right … I mean, if we’re doing a great job helping folks stay healthy, shouldn’t that reduce the demand for services? Where’s the growth (alpha) in that?

What business model generates a common benefit such as health and the type of financial alpha needed to attract investors?